Friday, December 16, 2011

India's growth dilemma in a graphic

I am labouring this point. Cities are already India's economic growth engine. In the years ahead, they are estimated to contribute 70% each of the national economic growth and all new jobs created. But rural India, where 65% of the population lives, takes up the major share of public spending and administrative energies. The graphic below summarizes India's public policy priorities.

This skewedness may be guilty of killing the goose that lays the golden eggs. India needs to grow near the double digit rate so that its tax revenues and new jobs created grow fast enough to meet the massive and growing demand. Higher tax revenues would provide governments with the necessary resources to expand public investments, both in rural and urban areas. Faster pace of job creation would provide adequate opportunities to accommodate the rapid additions to the workforce. It would ensure that the danger of our demographic dividend turning sour is averted. And, as I have blogged earlier, transfers are a function of tax revenues. Higher the tax revenues, more the resources available to reduce poverty and mitigate any rise in inequality through effective redistribution policies.

Unfortunately, both state and district-level public policy and public spending (investments and welfare spending) are disproportionately focussed on rural India. Much more needs to be done for rural development. But a more effective strategy to achieve that objective would be to strengthen the urban growth and job creation engine and then utilize the resultant growth in tax revenues to promote effective rural development.

1 comment:

KP said...

Dear Gulzar,

Could you provide some hard statistics.

On a per capita basis - it appears that the skew in spending is rational - but whether it is efficient may be the question.

Since welfare funding is about long term externalities - education / health / sanitation etc., are not really productive in the typical sense.

Since the 65% in rural areas are also consumers - they represent a market too, albeit limited by their lower earning / skewed incomes / and a preference that may not be similar to their urban counterparts (cultural).

Since cities by default - through a combination of history / location / weather etc., are clearly agglomerations based on contribution to a supply chain based productivity- we will either see more cities or larger cities.

I am assuming that people staying in villages do so - for reasons to do with agriculture ( land owning) / a cultural preference / or due to the absence of any specific skill sets that allow them to migrate to a better quality ( relatively and mostly measured by earning) of life in the city.

Is it the case that most of the problems in the city areas are essentially due to a shortage of resources - due the current prioritization of spending - and not necessarily due to poor planning and deployment of resources at hand.